Strategists at Credit Suisse do not see a strong reason for the RBNZ to push back against the sharp recent hawkish repricing in RBNZ policy expectations at the 14 July rate decision, but nevertheless note that tactical risks have become very asymmetrical, and suspect that AUD/NZD might be vulnerable to spikes higher if the meeting outcome fails to properly validate market expectations. They continue to like fading AUD/NZD rallies to 1.08.
“We think the data, especially coming from the Q2 survey, should provide the RBNZ with sufficient confidence to sound constructive at next week’s meeting, even amid ongoing uncertainty in the travel sector. The sharp increase in tightening expectations that has taken place over the past week or so (OIS markets are pricing in a 25% probability of a rate hike by August at the time of writing, up from approximately 8% a week ago) however raises the question of whether the RBNZ will be actually able to meet the market’s aggressive outlook.”
“We adopted a 0.6850-0.7215 NZD/USD target range for Q3, with a fundamental preference for NZD over AUD. We also acknowledged the asymmetrical risks around RBNZ policy decisions, by opting to favour a strategy of selling rallies in AUD/NZD to 1.08 over taking outright directional views: taken together, this set of views overall still seems appropriate.”
